Signature Bank at Deutsche Bank Global Financial Services Investor Conference
May 28, 2014 AM EDT
SBNY - Signature Bank
Signature Bank at Deutsche Bank Global Financial Services Investor Conference
May 28, 2014 / 01:35PM GMT
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Corporate Participants
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* Joe DePaolo
Signature Bank - President and CEO
* Eric Howell
Signature Bank - EVP, Corporate & Business Development
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Conference Call Participants
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* Dave Rochester
Deutsche Bank - Analyst
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Presentation
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Dave Rochester, Deutsche Bank - Analyst [1]
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Good morning, everyone. I am Dave Rochester. I cover the mid-cap banks here in the US for Deutsche Bank. It is my pleasure to introduce the management team from Signature Bank.
I think it is fair to say Signature Bank has one of the most unique and successful business models in this space today, which has been really the driver for some of the strongest earnings growth that we have seen in the space. And just to give you a sense of magnitude of that, we have seen earnings double the core basis over the last three years and triple over the last five years, so some very impressive trends that are hard to match.
With us today is Joe DePaolo, President and CEO, and Eric Howell, Executive Vice President of Corporate and Business Development. I am going to turn it over to Joe now to give some opening remarks and then we will get straight into the Q&A.
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Joe DePaolo, Signature Bank - President and CEO [2]
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Great. Thank you, Dave. Appreciate the opening remarks. I want to thank everyone for being here this morning. I will give you a quick update as to what is happening in terms of deposits and loans.
For the last three quarters, we have had growth in deposits and/or loans of at least $1 billion. And we don't see that being any different for the second quarter of 2014. I can't say both will be, but we are saying one and/or the other will have growth of $1 billion.
We have a robust loan pipeline and our deposit growth on average has been excellent. I say on average because there are announced -- on average the numbers are excellent on a deposit side and, again, on the loan side, a robust pipeline. And it continues, whether that is for the second quarter, even going into the third quarter we have a robust pipeline.
As it relates to teams, we are in our, I will call it, a digestive period. We acquired or had 15 teams joining us since January 1, 2013. In addition to those 15 teams, we have also had an ABL team join us. We added on quite a few sales execs in Signature Financial, which is our equipment financing and leasing group. So we are in a digestive period of having -- working with them closely, bringing their clients on board, growing their books of business.
The pipeline for teams is not where it was in the last several quarters because we brought so many teams on in the fourth and first quarters. But I will say this. For the first time, we are really mentioning this, and Signature Financial, which is our equipment leasing and financing group, we are going to be adding on, in all likelihood, two lines of business that we are not on and we don't have today. They will be new to Signature, but not new to the people we are bringing on board.
And I am not trying to be shy about saying what the new businesses are. It is just that, until the people are on board, we would not tell you what lines of business they are. But both of them will be national businesses, which is what the equipment financing and leasing group is -- the national business. And we are very excited because it will bring more diversification to the asset side of our business.
So I think that's enough of listening to me. And I will turn it over to you and question away.
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Questions and Answers
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Dave Rochester, Deutsche Bank - Analyst [1]
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Well, let's just pick it up there. Yes. That is pretty exciting stuff. What is the timing of these guys coming on board? Would it be this quarter or next quarter?
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Joe DePaolo, Signature Bank - President and CEO [2]
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What would you say?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [3]
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I would say within the next quarter or two.
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Dave Rochester, Deutsche Bank - Analyst [4]
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Okay. And so in terms of the growth prospects for those two lines, what is the universe you are looking at? It is a national platform, and so whenever I think national platform, I think back to the original Signature Financial and the product lines and the growth that you have had there. I mean, are you looking at the prospects of similar growth?
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Joe DePaolo, Signature Bank - President and CEO [5]
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Let's just say we expect to be very happy. I would rather not -- I want to share with everyone that we are going to have continued diversification without getting into too many specifics until the teams are on board. But I would venture to say that we are looking at breakeven within about a year or a little bit more than a year in these new businesses.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [6]
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I think if you look at Signature Financial, Dave, they have done $2 billion over the last two-plus years with 20 salespeople. I would really equates both of these categories to more of a salesperson plus. All right? So it is not going to be billions of dollars worth of growth that we are talking about here, but this will certainly allow us to continue the pace, if not tick it up a little bit for Signature Financial, what they have been doing per year.
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Joe DePaolo, Signature Bank - President and CEO [7]
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Yes. The good news is, it is incremental because we are not doing it today. So it will be new business. It won't be new to the people we're bringing on board because they have decades of experience, but it will be new to us.
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Dave Rochester, Deutsche Bank - Analyst [8]
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So, good opportunities to cross-sell the existing customer base, by any chance?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [9]
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Certainly, one of the arenas. I would say yes. The other one, not so much.
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Joe DePaolo, Signature Bank - President and CEO [10]
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Yes.
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Dave Rochester, Deutsche Bank - Analyst [11]
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Okay. Great. You touched on the ABL team that you brought in. I was just wondering how that team is tracking to your expectations and what kind of growth we can expect from those guys this year and next year.
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Joe DePaolo, Signature Bank - President and CEO [12]
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They just started to book some business in the first quarter. We have a number of -- when we are talking about our pipeline, we were thinking about them as well. We had a number of deals. The pace at which a deal gets booked is much longer. It is not like a commercial real estate deal that gets done in 45 days. There is a much longer period.
But we are very satisfied with where they are today. Again, that is not a business that is going to be a multibillion dollar business in a short period of time. If it adds on several hundred million of dollars over the next year or so, we would be very happy because it diversifies the asset side of the business.
And it also helps the 90-plus teams. See, the one thing about the 90-plus teams, when they came on board, it was just C&I years ago. And now we added on commercial real estate. Then we added on equipment financing and leasing. And now we have added on ABL. So it gives them an ability to do more things with their clients.
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Dave Rochester, Deutsche Bank - Analyst [13]
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Okay. Switching to multi-family, that has been a big driver of growth for you guys for the last several years now. And, in the fourth quarter, you added a new element to that, which was the larger multi-property transactions. And I know we have talked about this before and you sounded fairly positive that you might end up seeing more of those, given that now you are on the map for those types of transactions. And I was just wondering if you could kind of update us there on the landscape you are seeing and what you think the possibilities are this year.
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Joe DePaolo, Signature Bank - President and CEO [14]
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Sure. We actually have seen more deals. Let's call it in the $60 million to $80 million range; multiple buildings, multiple loans adding up to that. Whether they close in the second quarter or the third quarter, not quite sure. I know there is one that we are talking about right now that is in the $60 million to $80 million range that will be -- if it does close, it will be a third quarter event.
And the press or the internal referral or the undertow of the real estate market, the word out there, that has helped us get these new deals. It was big news doing $450 million in two deals. But it was really $450 million in 30 deals. It just happened to be that they were done at the same time, you know, the buy and sell.
So I think what is driving that is the fact that we can close in 45 days and you have a willing seller and a willing buyer that wants to get done. They don't want it to drag on. So that, coupled with the fact that we have done some major deals, you know, you are talking about one deal that had over 25 buildings where there were multiple loans where you had to do multiple appraisals, multiple environmental reviews. You had to do the title work. You had to do all the documentation fund and close, or close and fund, whichever way you look at it.
It is a lot of work. It is not one building that is $450 million. It is a lot of work that goes into it and they want to know if you set a date that it's going to close by that date. So yes, we are seeing more activity, not to the extent of the $450 million in two deals, but certainly are.
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Dave Rochester, Deutsche Bank - Analyst [15]
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Great. Any sense for how large that transaction universe is? I mean, are these deals all over the place and you can just pick and choose what you do? I am just trying to get a sense for how -- (multiple speakers)
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Joe DePaolo, Signature Bank - President and CEO [16]
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Well, I don't know how large or small the market is, but no matter how large or how small it is, we will still pick and choose because we have to be comfortable with the buyer. In one of those two deals, the buyer actually backed out. And we thought the deal was going away. And another buyer stepped in, and it happened to be someone we were very comfortable with and we were able to close the deal.
If that new buyer was someone we were not comfortable with, we would walk away because it is not worth doing a deal that large and you are not comfortable with the purchaser. It had to be someone that has experience, has a good -- very experienced, has a good reputation in the market. It doesn't have to be that we have done business before, because it could have been that we hadn't had a chance to do business. And when I say business, it could be not only at Signature, but it could be whoever brought that business in from the previous bank.
So I think, for us, whether it is large or small, whether it is a real opportunity for us, it has to be someone that we are comfortable with. We just think that the market is so large, although I can't define how large it is, that you could pass up deals because you are not comfortable with the buyer and not be hurt.
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Dave Rochester, Deutsche Bank - Analyst [17]
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I know we talked about this at our conference last year. You were about $18 billion in assets then. You are over $23 billion in assets today. And we talked about the number of large loans you had, over $25 million, and your comfort level with doing larger loans.
You are even bigger now, and I think the most recent stat was 25 loans over $25 million. It is probably about the same today. I was just wondering, what is your willingness to go larger now that you are doing these larger multi-property deals.
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Joe DePaolo, Signature Bank - President and CEO [18]
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What is the number?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [19]
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I think it is $28 million.
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Dave Rochester, Deutsche Bank - Analyst [20]
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It is $28 million now?
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Joe DePaolo, Signature Bank - President and CEO [21]
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Yes. We are much more comfortable. What is interesting, though, we haven't changed, really, our viewpoint that it is over $25 million, who looks at it, how it gets done. But I wouldn't be surprised if the number went from $29 million to $40 million or $50 million in a period of time, just simply because we are a lot more comfortable doing them today.
And it is really -- so we are at $23 billion. Whether we were $23 billion, $24 billion, or $25 billion or even $30 billion, I still think we would handle it the same way. We tell everybody our market is up to $25 million. But we are getting so many opportunities above that $25 million mark, the one thing we have to be careful is that, above $25 million, the pricing sometimes can get more competitive.
So we say we are not in it, but we are in it. But we are not wholeheartedly in it because if it is something so ridiculously priced, it is not worth putting on your books even if it is at the most stellar credit. So we are comfortable in that $25 million to $40 million, $50 million.
It depends if it is multifamily, if it's commercial or if it is retail. On those three, we're much more comfortable with the multifamily doing $40 million. We have been presented with opportunities to do deals at $80 million and $60 million, and we have brought in two other banks where we have taken a piece and they will take others, like $10 million or $15 million piece.
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Dave Rochester, Deutsche Bank - Analyst [22]
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That is on the multifamily side?
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Joe DePaolo, Signature Bank - President and CEO [23]
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Well, even on the commercial building -- on the office building side. We will do some of those.
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Dave Rochester, Deutsche Bank - Analyst [24]
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We have an interesting chart in our New York City multifamily update, which I know you guys have seen. That shows how the portfolios have grown across the major players and the multifamily space over time. And it is interesting because you guys of course have the strongest growth rates and the most growth.
But, then you look at the other portfolios and they have all seemed to have grow over the last two years. And so even though you have taken a lot of share, it still seems like there is more to take. And so I just want to get your thoughts there and if you still see a lot of opportunities to pick up share.
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Joe DePaolo, Signature Bank - President and CEO [25]
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Well, even -- Eric Howell, there is a lot of runway.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [26]
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There is a lot of runway.
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Joe DePaolo, Signature Bank - President and CEO [27]
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And, although it is hard to define how much runway there is, as we are bringing more teams on the board, we realize how much more business there is to be had. There are so many buildings in the Bronx that we haven't financed. But, yet, we have financed quite a few, but still, there is an Albanian community where we just scratched the surface of doing multifamily buildings there in the Bronx.
The Bronx would be considered the sixth largest city in the United States, if it was a city by itself. And Queens and Brooklyn, I think, would be considered in the top 15 states, if they were states. So there is a dense population and there clearly is opportunity for us because of our efficient way of closing business, so we think the runway is there.
And, when I say new -- I think of Long Island, Nassau and Suffolk. I also consider Westchester. There is more multi-family need there, because as the population gets older, people want to sell their homes. They want to live in an apartment. So not as dense, clearly, as the boroughs. And then there is New Jersey and Connecticut, where we are doing quite a bit of business, you would say, right?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [28]
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Yes.
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Joe DePaolo, Signature Bank - President and CEO [29]
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In New Jersey on the multifamily side.
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Dave Rochester, Deutsche Bank - Analyst [30]
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Great. And I know you have been asked about this before, but maybe if we could just get a refresh on your thoughts on -- the rent guidelines for it has a final vote coming out June 23.
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Joe DePaolo, Signature Bank - President and CEO [31]
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Yes.
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Dave Rochester, Deutsche Bank - Analyst [32]
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If we were to see a rent freeze for one year leases, what do you think that has -- what kind of impact do you think that has on the market? I know you mentioned previously you think maybe there will be some positioning around that -- maybe some more purchase and sale activity.
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Joe DePaolo, Signature Bank - President and CEO [33]
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Right.
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Dave Rochester, Deutsche Bank - Analyst [34]
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What do you think the longer-term impact would be?
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Joe DePaolo, Signature Bank - President and CEO [35]
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Well, you have to take our -- look at our client base. Our client base is one of -- whether it is real estate, whether it is owning of franchises, whether it is you are in the fence business, you are an architect, it is a fairly large business; multiple properties, multiple stores. And in real estate, our typical client owns 20, 30, 40 buildings, whether it is multifamily, whether it is retail or commercial buildings.
I know we are talking about multi-family here -- rent stabilized. They don't leverage to the max. When we underwrite -- this is important. When we underwrite, we underwrite to the current cash flow, not building in increases.
And when we underwrite, we also underwrite with a vacancy factor that is greater than the current vacancy factor that exists in that building. Many times, it is zero vacancy and we will build in a 3% to 5% vacancy with no increases. It is current cash flow. So there is a built-in cushion right there.
So we think there will be minimal to no impact on -- either a zero to up to 1 or whatever percentage they agree on for one- and two-year leases. We think there will be minimal impact because of everything I just said. It is not one client that has one building that has leveraged to the hilt, that their cash flow is based on increases. That is not us. That is not our client.
Having said all that, we are still watching very closely, because we don't know what it means for the long-term how -- what is it -- every year they need to give an increase for one- and two-year leases. So what does that mean for 2015, 2016, and 2017? We don't know yet. We just say, for the short-term, the intermediate term, we are fine.
And, Dave, you had mentioned that we had said earlier in other conferences or at least in other meetings, that it could create an opportunity. We think some owners will get frustrated and say it is time to pull out and there will be others that see an opportunity. And we think that can increase our business, because if there are buying, selling opportunities, they are going to come to us as opposed to someone else.
I sound upbeat. We are still not happy about it and disagree with it, but we see it as clearly an opportunity for us.
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Dave Rochester, Deutsche Bank - Analyst [36]
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Do you think it has any impact on cap rates? And if valuations are impacted, do you think that that maybe pushes out the whole cash-out refi cycle that has helped drive some refi business or--?
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Joe DePaolo, Signature Bank - President and CEO [37]
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Well, if you are not leveraged to the hilt, then you still have opportunities to refi. And if you think rates are going to go up and rise, you're probably going to want to refi sooner than later. So I am not so sure.
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Dave Rochester, Deutsche Bank - Analyst [38]
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Okay. You mentioned the equipment finance business earlier -- Signature Financial. The portfolio is around $1.8 billion, $2 billion today. I know you are expanding that with two other lines, but I am just curious, given the platform that you have today and the personnel, what kind of capacity do you have to grow that portfolio over the next few years? How large can that portfolio get?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [39]
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Well, I mean, they had a $4.5 billion portfolio where they came from -- Capital One, all point Capital. So there is no reason to think that we can't get back to that level. And I think you will see similar type of growth, that $200 million amount per quarter. And, again, adding on these additional product lines and capabilities is certainly going to help us to maintain that growth rate.
So there are things that happen at the mega institution that they came from that slowed their growth. And that is the reason why they came to us. And they -- if you talk to a management team there, I think that they can get well north of that $4 billion, $4.5 billion. But, let's get to $4 billion first and see where we can take it, Dave.
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Dave Rochester, Deutsche Bank - Analyst [40]
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And, we have talked about other areas of growth for you guys on the C&I side. I know you talked about the SBA business in the past, and at some point in the future potentially portfolio in more of that. And if you could just comment there.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [41]
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Possibly, that is an avenue for growth. And we have looked at over the last several years, how we do we bring more products and capabilities and services to our existing client base. And what we are not looking for is a different client base. We are not looking for a retail client. That is not what we are about.
We are not going to go high in corporate. That is not just something we can service efficiently and as effectively as the megabanks. But, certainly, to the privately held business owner, what capabilities do we need.
And really started back in late 2007, when we said, well, we are in New York and we have to be able to service and lend on multifamily properties. And that was a huge part of our deposit client base. And they're saying, look, you are taking our deposits, but you are not making the loans on our properties. So that was the first thing.
And then, certainly, Signature Financial came along where we had a significant amount of opportunities to cross-sell there, when clients needed us to provide leases on all their various types of collateral. So that was the next thing, and then ABL.
And now the one area that potentially we can look into is SBA 7-A lending. That certainly could be an avenue for us. Beyond that, I think we have rounded out our capabilities and our offerings to our existing client base. So then it is adding on to Signature Financial and asset-based lending and growing out their footprints and adding more sales force in these areas.
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Dave Rochester, Deutsche Bank - Analyst [42]
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Can you just update us on customer sentiment within your C&I book amongst your business customers? Has that improved at all? I know they have been fairly cautious for a long time now.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [43]
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They still seem pretty cautious. Yes, they are still not really drawing down on lines. Utilization is as low as it has been, in the low 40% range. They still don't seem all that optimistic about what is happening out there.
Many of them still haven't filed their tax returns, right. So they don't know how the increase in taxes are going to affect them. They are still trying to figure out all the issues around healthcare and healthcare costs. So they really don't seem all that enthusiastic right now.
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Dave Rochester, Deutsche Bank - Analyst [44]
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Switching to the margin and pricing, can you just give us an update on, first, the competitive landscape, and then how pricing has trended just given the (technical difficulty) we have seen in the curve?
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Joe DePaolo, Signature Bank - President and CEO [45]
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Well, I can tell you, on commercial real estate, we haven't changed our rates since March 11. For a five-year fixed multifamily, it is 3-3/8. It is probably a quarter higher than our competition, although we have seen some four-year sub-3% rates, 2.95% for four years, kind of like a special which we are not competing against.
We saw a lot of movement in the fourth and first quarters and rates going up and down, but, like I said, since March 11, it hasn't moved. I know the one interesting thing about the 10-year, which we are ready to talk to clients about, is that when the 10 year was at 1.60%, our lowest rate was 3.25% for a five-year fixed multifamily. So the fact that somebody could say, well, it was at 3% and now it is at 2.50%, and if it gets lower, are you going to lower your rates? Well, do you remember when it was at 1.60%? We're where we were.
We are still seeing pretty competitive landscape on rates. We are getting our 3% and 3.75% and 4%s on some of the commercial buildings and the retail. I would say the most competitive is the multifamily. But you do have other banks out there, unnamed, that one just did a big raise. They have a lot of dollars can do something with. And that bank from New Jersey that is coming in, we have the bank from Connecticut that is coming and they are all into the multifamily. And that has created the competitiveness.
I don't think it has changed from the last year. I think we will always be a quarter to 3/8 higher. But, like I said, the pipeline is robust and it has been fairly robust for the last three to four quarters. It continues to be.
Even though we had $700 million in growth in the first quarter, that was our best first quarter, it wasn't $1 billion because, while we did a lot of business that was pushed into the fourth quarter and the first quarter traditionally is not the heavy quarter. Having said that, even with all the competitiveness, one of our colleagues says if we dropped our rates a quarter, think about how much business we would book. And that is true. But, we think that where we are setting our rates is fine.
On the C&I side, I think that is where it has gotten even more competitive than on the commercial real estate side, because the big -- the too big to fail banks are all in that space. They are not in that space in commercial real estate that we are in. But in the middle market, they are in that space. So an HSBC or a Chase can offer a LIBOR-plus in the ones. When that credit should be a LIBOR plus 250, they can offer a LIBOR plus 175. And that is not something we are comfortable with, because we don't think LIBOR is going to move for a little bit of time.
And, as a result, you are taking the chance at a yield that is just clearly not acceptable. So I think the competition in the middle market C&I world is more intense than it is in the commercial real estate world.
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Dave Rochester, Deutsche Bank - Analyst [46]
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Where are you seeing pricing on Signature Financial products right now? Still in the high 3%s at this point?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [47]
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High 3%'s to really low 4%'s. The bell of curves picked up a little bit. So that has been a good area for us to lend in right now.
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Dave Rochester, Deutsche Bank - Analyst [48]
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And securities and investment rates, low 3%'s?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [49]
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Low 3%'s to even now we just started dipping into the high 2%'s. But we are being ultra, ultra-selective there, given the loan pipeline that we have. So that allows us to really maintain a little bit better yield there.
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Dave Rochester, Deutsche Bank - Analyst [50]
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So it sounds like even though the curve has come in a little bit, you feel pretty comfortable that the margin can at least stabilize here in the near future.
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [51]
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Yes. Overall, we feel pretty good about the margin. We talked about the day count issue. Who knows, it's another day or two this quarter, so that affects us. But, you know, ex-that, we should be able to bounce around these levels for a while.
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Dave Rochester, Deutsche Bank - Analyst [52]
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Great. I will throw out a couple more and then we will open it up for everybody. Just, given that you have got some new teams coming in, I would imagine expense growth should be maybe not robust, but we should see a little bit more of a pickup in 2Q. And then potentially we would see that drift down to more like the midteens type year-over-year growth through the end of this year. How should we expect think about the expense trends from here?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [53]
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You know, look, whenever we put on a significant amount of teams in a quarter or two, we have seen a pickup in expenses. Going back to years, Signature Financial certainly saw that bump up there where it went to 20%, 25% increase. This past quarter -- we did something in the fourth quarter of last year that we really hadn't done in the past, which was hire a number of teams.
The megabanks have changed the way that they paid out where they have diminished the payout to bankers, that it allows us now to attract people in the fourth quarter where we typically wouldn't do that. We would wait for them to get their bonuses in the first quarter. So that is something new to us, Dave.
And so we have hired three teams in the fourth quarter, plus the ABL group, and then added another four teams in the first quarter and one team on the first day of the second quarter. So all that has got to flow through. And we saw the pickup in the first quarter. I think we are going to have it slightly elevated again in the second quarter, but, then, as you said, start to trend downward from there.
But, all that being said, our efficiency ratio still improved year-over-year. That is really where our focus is, in improving our efficiency ratio.
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Joe DePaolo, Signature Bank - President and CEO [54]
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Everybody loves an acquisition, but there is an intangible asset that gets put on the books. We do our acquisitions by hiring teams and we expense everything. So the bonuses that we guarantee, at least the first year, that is the premium that we are paying before the revenue comes in. So we still have this clean balance sheet, and as Eric said, the expense flows through.
And as long as we tell the world when we are bringing on these teams, they will understand that the expense would be there. And then, ultimately, the efficiency ratio goes down because the revenue follows through and exceeds the expense growth.
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Dave Rochester, Deutsche Bank - Analyst [55]
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One last one before I open it up. How do you guys look at your asset sensitivity? I mean, it seems, in your scenario analyses, you are modestly asset-sensitive. But, it would seem like, for the first 50 to 100 basis points of rate increases, that you have the potential to be a little bit more asset-sensitive. And maybe your numbers show just given the -- your rates on your institution money market deposits are more negotiation driven and it is stickier funding you have there. What you think about that?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [56]
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Well, we think that that is true. But we try to be conservative in our modeling and conservative in our disclosures around that.
And it is very hard -- I mean, Dave, who knows how depositors are going to react, really, right? So what we want to do now is be as core funded as we possibly can. And it is hard to believe that we are more focused on deposits than we were and we have been a deposit-driven institution from day one. But we are very focused on core deposit growth right now, because we really want to fund all of our loan growth that way, with the expectation that rates will rise and that deposits will act favorably in that rising rate environment.
But there is a tremendous amount of assumptions that go into those models and we think that we are on the conservative side. And we have independent analyses done annually on that deposit base, and they confirm that. So we feel pretty good about it, but this is a deposit environment that we haven't been in.
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Joe DePaolo, Signature Bank - President and CEO [57]
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Yes. That initial growth in rates -- we are already there. So we think we get a pass. We don't have to increase our rates while everybody else is. But, how long the memory of our clients are is anyone's guess.
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Dave Rochester, Deutsche Bank - Analyst [58]
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Great. We have got a few minutes for questions.
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Unidentified Audience Member [59]
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Picking up on the last question discussion, can you talk about the value of deposits you can have, whether that has changed at all and whether regulators still appreciate the value of core deposits?
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Joe DePaolo, Signature Bank - President and CEO [60]
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I think regulators do, at least in the conversations we have had with them. Our philosophy has been if Fed funds is zero or 6%, we believe that a DBA core operating account is valuable. And an institution is always valued not on what is the premium to loans. It is always what's the premium to deposits.
And so we are always in this mode -- we call our comp model our behavioral model. We are always in the mode or the behavior that says, you should bring in non-interest-bearing deposits even when Fed funds is negligible, because once you bring in that operating account that has lockbox attached to it, that has cash management services attached to it, ultimately, when rates go up it gets even more valuable.
So we never worry about where the rate environment is, in terms of deposits. We always think it is the right thing to do. And those have been our discussions with the regulators and they seem very happy. Particularly with the large growth in loans, they love the fact that it is being funded with deposits and not borrowings. So that hasn't changed.
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Unidentified Audience Member [61]
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Can you talk about the cost of regulations and try to quantify that and how that's changed and how you see it going forward?
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Eric Howell, Signature Bank - EVP, Corporate & Business Development [62]
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It is a lot. I mean, the best way to quantify it is several million dollars. But, again, it is hard to quantify is the amount of time it takes away from management. That is really the difficult part to put a number on. But it is probably several million dollars and growing.
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Joe DePaolo, Signature Bank - President and CEO [63]
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I mean, we have added people into this management area, particularly since all the work we are doing with stress testing. We had to submit our stress test as of March 31, although stress testing does not become public for us until June of 2015, unless that changes.
We have added -- we have had to have consultants pre-, during, and post, right, to help us put together the information to do the stress testing. And I will say this, and I know this is public. The regulators do not care about cost. They recommend best practices and expect that you do them at any cost. Short of bankruptcy, it is at any cost.
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Dave Rochester, Deutsche Bank - Analyst [64]
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Great. I think that is all the time we have. Thanks, guys.
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Joe DePaolo, Signature Bank - President and CEO [65]
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Okay. Thank you. Everybody, thank you for participating.
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